Recent Budget Announcement (Author: BDStock.

com-Amit J)
Posting Date:2011-08-20

A significantly higher allocation of Taka 50,642 crore for development expenditure for the third financial year of Prime Minister Shaikh Hasina’s ruling Awami League government that set a vision for upgrading Bangladesh to a middle-income status by 2021, coinciding with its golden jubilee year. With an expansion of tax net by over 24 per cent to optimally finance the new national budget, he targeted the revenue income to be Taka 118,385 crore, apparently leaving a revenue surplus of Taka 30,534 crore for the next fiscal, starting from July 1, 2011. The budget proposed allocation of Taka 140 billion ($1.9 billion) in subsidies for fuel, power, food and fertiliser in the coming fiscal while the subsidy bill in the outgoing fiscal blew out to Taka 143 billion from an original estimate of nearly 10.3 billion taka, largely due to higher global oil and commodity prices. The budget expects the overall spending to increase 23 per cent in the coming fiscal to Taka 1.6 trillion with the government aiming to cap its deficit at 5 per cent of gross domestic product up from a revised 4.4 per cent of GDP in the outgoing 2010-2011. The government has allocated Tk 510 crore in the proposed budget for 2011-12 fiscal in favour of science and ICT ministry especially for development of the ICT sector. Of the total amount, Tk 215 crore will be spent under the Annual Development Programme and Tk 295 crore under non-development sector. Finance minister Abul Maal Abdul Muhith made the announcement while placing the budget for the next financial year before Jatiya Sangsad. The proposed budget kept a special allocation of Tk 100 crore for the ministry under the non-development sector to nurture the ongoing endeavours of digitising various systems. In the revised budget of the fiscal 2010-2011, the total allocation for the ministry is Tk 427 crore. Of the amount, Tk 118 crore is under ADP and Tk 309 crore for non-development sector. The proposed budget said the allocation for the ministry has been made to attain overall socio-economic development of the country through Science and ICT related research, development, extension and the successful application of these activities. The proposed budget is less private sector-friendly. The same comes amid costlier credit, tight money supply, government's huge bank borrowing, uncertainty in gas supply and growing instability in politics. Economists of the World Bank have expressed an opinion that the proposed Bangladesh budget for 2011-12 fiscal year is highly ambitious one but implementable provided the prerequisites are fulfilled.

They have highlighted that to enable 7 per cent GDP growth, industrialization and uninterrupted electricity supply have to be ensured, which means a smooth rolling out of power of newly created capacity. Inward remittances need to be aggressively promoted (Author: BDStock.com-Amit J)
Posting Date:2011-09-09

On the backdrop of the crisis in the Middle East, particularly Libya, such trends may seem worrying. However, increased recruitment of Bangladeshis by Saudi Arabia and possibility of higher petroleum prices leading to growth in the Middle Eastern countries is worrying for the country’s GDP health, but the recent rise in crude oil prices at international level could be one of the advantages, supporting the resumption of inward remittances in large scale in the long term. Given that remittance is a large part of Bangladesh’s GDP, recent trends in its inflows are concerning. Moreover, remittance has long been the cushion against high imports that contributed immensely to sustaining the international reserves. Both these variables have started to dwindle recently, with the current account balance delving into negative territory after quite some time. The rise in exports, which grew by close to 40% in the FY11would provide support to the current account and international reserves. However, steps need to be taken to boost and sustain inward remittance as well, which has started to show a slow rate of growth year after year over the past three fiscals. Dividends Collection is much safer Investment in volatile market. (Author:
BDStock.com-Amit J)
Posting Date:2011-08-01

After a runaway rally in the last calendar year, stock market in Bangladesh has finally witnessed a pause over the past few months with some volatility. After sustaining an upward momentum, the stock markets have refused to move upwards in a straight line, and are showing signs of choppiness over the past several weeks. While one of the reason why the benchmark indices have taken some profit taking over the past few weeks includes the spiraling crude oil prices and a shift in focus of investors towards precious commodities, there are some investors, still betting on stocks, which could offer healthy returns even in times, when market takes time to consolidate near current levels before a decisive breakout. So what could be the ideal preposition for such investors, to make the best out of market, even when volatility has dampened the spirits of investors looking for a healthy return in last few weeks? One of the ideal foils, under such volatile circumstances, could be to look for safe dividend yield options, which keep offering steady returns over a period of time. While choosing the dividend yield options, an investor needs to outline a few factors, which could be: For one, to select such dividend yield options, by checking out the consistency of the past few years, of the dividend paid by companies chosen. For that matter, only the companies

offering uninterrupted dividend every year, usually qualify as the ideal dividend yield plays. • Apart from same, even amongst the stocks which qualify amongst the dividend yield stories, there are outright winners, in which such companies may have even been aggressive enough to raise the dividend paid several times over the past few years, to authoritatively qualify as outright winners. • In case of such dividend yield stories, the ideal bet should be placed on stocks, which have a strong statement in the making, with the product they offer, so as subsequently qualify as growth stories, apart from being dividend yield options. • Investors should remember that in order to get a right mix of portfolio between growth in the portfolio and the dividend yield options, only a part of the portfolio should be allocated to the dividend options, rather than entirely betting on them. Any such move could hamper the chances of getting a healthy return out of aggressive portfolio. • Also, investors opting for dividend yield should not frequently get into the habit of shuffling their selection of dividend yield options and remain put with the same as a strategic part of portfolio as defensive stocks. • Such types of companies should do well during inflationary economic conditions, as they would be able to pass cost increases over the consumers, who demand that specific product type. The rising dividend would also provide investors with an inflation adjusted stream of income, which would maintain and grow its purchasing power over time. • Investors should be selective enough to not to overpay for them. The lost decade for stocks was caused exactly because investors bid up stock prices to high levels. New IPOs Activities So Far For This Year (Author: BDStock.com-Amir J)
Posting Date:2011-07-22

The current year has turned out to be a mixed year so far for the IPO’s launched in Bangladesh over the past five and a half months. An aggregate of seven public issues have so far been thrown open for the public for subscription in the current year. While at least three of these issues have been offered at a premium, the other four IPO’s have come out so far at par. Out of the seven IPOs so far floated in the primary market till today in the current year, four of these issues have come out from new companies including Salvo Chemical Industries, M.I. Cement Factory, Baraktullah Electro Dynamics Ltd and MJL Bangladesh Ltd. While two of these issues offered by companies- MJL Bangladesh Ltd and M.I. Cement Factory have tried their hands out in raising funds through the relatively new method of book building method for pricing of new issues, the other five issues have so have come out on a fixed pricing basis. In fact, the SEC’s directive to defer offering fresh approvals

after January this year, to companies seeking to come out with book building method, has left at least 10 more companies, lined up with fresh IPO’s in a watchful mode. This is because ever since the approval to allow book building method for pricing of new issues, the SEC has come out with some observations suggesting that the method has left scope with the companies to carry out manipulation in the share price fixing, soon after the issue and listing. In terms of prices commanded so far by the new issues which have hit the markets so far in the current year, M.J.L Bangladesh Ltd, Baraktullah Electro Dynamics Ltd and M.I. Cement Factory have so far come out this year with their IPOs at a strong premium. While Baraktullah Electro Dynamics Ltd issue was offered at a fixed pricing basis, the other companies came out with a book building method, which was initially tried out in Bangladesh only last year by a couple of companies. Amongst the IPO’s which have already sailed through in 2011, MJL Bangladesh Ltd has turned out to be the company which raised the maximum funds worth Taka 6,096,000,000. The issue, which came out on a book building method of pricing the issue pricing, managed to command a premium of Taka 142.40 per share for the 40,000,000 equity shares it floated in primary market. The primary reason why the company managed comfortably to command a handsome premium of Taka 142.40 per share for 40 million shares it offered, was the brand name of Mobil, which is a renowned multinational company in the lubricants and petroleum segment. MJL Bangladesh Ltd is the official patent user to extract lubricants and oils and distribute the same in the territory of Bangladesh. M.I. Cement Factory Ltd was another mega public issue floated in January this year, as the company managed to raise funds out of 30000000 equity shares of TK 10 at a premium of TK 101.60 at an issue price of TK 111.60. The issue sought to raise TK 3348000000 through the IPO, of which 20 per cent were reserved for the institutional investors. Amongst the IPO’s now lined up for later this year once some uncertainties on pricing issues are cleared, Ananda Shipyard is scheduled to raise funds through fresh issue of 30 million equity shares. The company is primarily involved in the shipbuilding activity, and usually carries a large backlog of order book. Far East Knitting & Dyeing is another company which is slated to offer 30 million equity shares. The company is eyeing a premium of Taka 40 per share, to raise an aggregate of Taka 1,500,000,000. Apart from these issues scheduled later this year which are still waiting in wings, the other companies which are likely to raise funds through fresh IPO’s later this year include companies like GMG Airlines Ltd, Cotton Mills Ltd, Orion Pharma and few others. However, the timing of all the proposed issues would depend largely on how the markets behave later this year.

Even as the stock markets have started maturing of age over the past one decade, the growth of mutual fund in Bangladesh has been slow. Only recently there has been a rush for new funds. Many banks and financial institutions continue to in the queue with proposals for their funds. Mutual fund is a fund under a trust. Investment in mutual fund is ideal for investors who do not want to take risk because the fund is managed professionally and the collective investment is diversified. The price of a closed-end fund share is normally determined by the value of the investment in the fund. Therefore, the market price of a fund share is often close to per share NAV. However, the maturity of mutual funds is taking its sweet time and NAV’s of mutual funds are still not close to their market value of such funds. It is seen that market price of a mutual fund share can at times be much higher than their NAV justify. Unlike the other developed and developing stock markets where investors prefer to invest in the open ended mutual funds, the concept of open ended mutual funds has started catching pace in Bangladesh only over the past three years, ever since the SEC, the stock market regulatory authority, has allowed floating of open ended mutual funds, apart from the existing format of closed ended mutual funds, which tend to mature in 10 to 20 years from incorporation and listing. However, while the open ended mutual funds are still in a nascent stage since they were permitted to launched in the country, the entire mutual funds sector continues to be heavily dominated by closed ended mutual funds, floated mostly by banks and institutions. Just an aggregate of 32 mutual funds were listed on the Dhaka Stock Exchange till last month, unlike the other neighboring countries like India and Hong Kong, where the mutual fund culture has really picked up over the past three decades, ever since the permission provided by local stock market regulatory authorities to allow private sector to come out with new schemes. The SEC policy of allowing these funds in phases in Bangladesh seems to be rational. But impediments should not be created in their normal growth and development of mutual fund should be encouraged. More institutional and professional investment is likely to stabilise the market and help reduce rumour based investment. Under the open-ended criteria, the fund size may be increased from time to time by the asset management company with due approval of the trustee and notification of the SEC on requisition from the investors. The investors are also allowed to redeem their holdings directly to the asset management company. The funds are invested in listed and non-listed

companies incorporated in Bangladesh both in equity and money market instruments as approved by the SEC and Bangladesh Bank. Mutual funds are usually managed by fund managers who undertake trading of the pooled money and are responsible for managing the portfolio of holdings. Generally, mutual funds are organized under the law as companies or business trusts and managed by separate entities. In Bangladesh, the number of mutual funds is small having low issued capital. At present, there are only 19 mutual funds of which nine are managed by the Investment Corporation of Bangladesh (ICB), six by ICB Asset Management Co. Ltd. (a subsidiary of ICB), one by Bangladesh Shilpo Rin Shangstha (BSRS) and the remaining three are managed by the private sector (AIMS and Grameen-One and Grameen-One: Scheme Two). Among these, two are open ended of which one is managed by ICB and the other by ICB Asset Management Co. Ltd. The major mutual funds schemes popular in Bangladesh are as under 1st ICB MF 1980 2nd ICB MF 1984 3rd ICB MF 1985 4th ICB MF 1986 5th ICB MF 1986 6th ICB MF 1987 7th ICB MF 1995 8th ICB MF 1996 1st BSRS 1998 AIMS 1st MF 2000 ICB AMCL 1st MF 2003 ICB AMCL Islamic MF 2005 Grameen MF One 2005 ICB AMCL NRB MF 2007 ICB AMCL 2nd NRB MF 2008 Grameen One: Scheme Two 2008 It may be noted that the market capitalization of all listed mutual funds declined between July and December 2008. The ICB is the major institutional player in the mutual fund market and its activities are crucial to bringing transparency and stability in the market. Apart from ICB, the newly entered privately managed mutual funds are performing relatively well in the capital market mainly due to the provision for reserve of 10 percent quota of each IPO for mutual funds. The market price of all mutual funds remains much higher than their face values reflecting the investors’ confidence and their expectations of future price hikes. The market price of all listed mutual funds declined substantially during JulyDecember 2008 mainly due to two factors: first, measures taken by the Securities and Exchange Commission (SEC) to dampen the excessive price hike of mutual

funds especially during January-June 2008; and second, increase in the supply of mutual funds through listing of two mutual funds (ICB AMCL 2nd NRB MF Grameen One: Scheme Two) with issued capital of Tk. 1.2 billion. The priceearning ratios show some moderation compared with January-June 2008 for all listed mutual funds ranging from 14.9 to 63.1 mainly due to price fall of mutual funds. However, since then, as the stock markets have shown a considerable growth following the recovery of Bangladesh economy after 2009, the NAV and market prices of mutual funds schemes have also rallied substantially over the past two and a half years. Although still small in size, mutual funds have contributed toward broadening the base of the country’s capital market and helped the investors to gain high and relatively secure returns. The major asset managers in Bangldesh are Grameen Mutual Fund - Grameen One - AIMS of Bangladesh AIMS of Bangladesh is the Asset Manager for the Grameen Mutual Fund One, the second closed-end private mutual fund in Bangladesh, the Grameen Mutual Fund One sponsored by the Grameen Bank, founded by Nobel Laureate Professor Muhammad Yunus, regarded as the innovator of micro-credit. It was in actualization of the objectives of the visionary Professor to devise an avenue to embark in the capital markets by creating a cost-effective and dependable financial instrument for the poor clients of Grameen Bank and design a product that can bridge the vast poor with the mainstream urban economy, give them ownership in the leading enterprises, and take advantage of the growth potentials. Grameen Fund, a not-for profit venture capital financing enterprise of the Grameen family is the Trustee and the Standard Chartered Bank is the Custodian of the fund. It is listed at the Dhaka & the Chittagong Stock Exchanges. A pioneering initiative was undertaken by some enthusiastic local and expatriate Bangladeshis to organize and float the first Mutual Fund in independent Bangladesh under private initiative. A company for this purpose was registered as Asset & Investment Management Services of Bangladesh Limited (popularly known as AIMS of Bangladesh) in December 1998, which emerged as the first purpose - built private asset Management Company of the country. The company was formally inaugurated on August 29, 1999 by the Finance Minister and remained as the only one of its kind for the next decade in Bangladesh. Bangladesh mutual funds are expected to grow from nascent stage to a more stage over the next one decade as the investors continue to show more interest towards investment in stock market through mutual funds and directly to overcome the inflation problems.